Weekly Update: March 4, 2015

| March 4, 2015

Weekly Update: March 4, 2015


Big Picture Outlook:

This morning’s EIA oil inventory report was another whopper…

For the week of February 27, crude in storage rose by 10.3 million barrels. The report came in above analyst expectations and pushed total US inventories to 444.4 million barrels.

What’s more, it was the biggest weekly crude inventory build since March 23, 2001!

Data like this supports the idea that crude has further to fall. 

But take a look at this…

Gasoline inventories came in flat (no build or withdrawal) last week- and that’s after the EIA reported a 3.1 million barrel gasoline drawdown a week earlier.

Another interesting tidbit is the fact distillate inventory is down by 1.7 million barrels on the week, which is on top of a 2.7 million drawdown the previous week.

What’s that mean?

A good portion of surging US inventories is due to a downturn in refining capacity.

In case you’re unaware, there’s an ongoing refinery strike where workers are demanding higher pay. The strike is affecting approximately 1/5 of US capacity.

What’s more, refineries are entering maintenance season, which also decreases capacity.

The important takeaway here is that the above bearish factors are temporary…

When the strikes are over and maintenance season is complete, US crude demand will start accelerating.

And to top it all off, the summer driving season is just around the corner. With gas prices still considerably lower than last year, I’m betting US drivers take to the roads in force in coming months!

Add it all up and I’m leaning on the idea that even though WTI may have a bit further to fall in coming weeks, the next downturn will be the last.

At that point, we’ll have ample opportunity to get long WTI via commodity ETF options in USO and OIL.

Be patient, there’s an enormous profit opportunity developing in crude!

Let’s get to this week’s updates…


Portfolio Highlights:

Editor’s Note: I won’t update every open position every update. I focus on the positions with significant news or price movement.

. . . . Penn Virginia (PVA) March 20, 2015 $8 calls

Good news and bad news for PVA…

First the bad news. The company reported horrible earnings last week. There’s no question the downturn in crude prices is hitting PVA hard.

But the good news is, PVA is offering itself up for sale!

Upon hearing the development, investors sent PVA rocketing higher from multi-week lows at $6.00.

Now we just have to see if PVA can get a deal done by our call option expiration on March 20th.  While it’s unlikely we see a buyout that soon, it’s not out of the realm of possibility!

Since our $5.50 risk control line has yet to be hit, everyone should still be in this trade. But since expiration is approaching rapidly, the value in our $8 calls is eroding quickly.

So here’s what we’ll do…

If you’re overly conservative, you may want to close these calls for the minimal value that’s left in them. If you want to take a chance on a quick PVA buyout, keep holding until expiration later this month!

. . . . WPX Energy (WPX) May 15, 2015 $12.50 calls

Here’s another company that reported earnings last week. Despite the huge downturn in oil prices, WPX reported Q4 and full-year 2014 earnings above analysts’ expectations.

The company brought in $219 million in Q4 net income, or $1.10 a share. For the year, WPX collected $164 million in net income, resulting in a $0.80 a share yearly profit.

No doubt about it, the results were far better than Wall Street forecasts.

Despite the strong results, WPX sank to 52-week lows following the report. As a result, our adjusted $11.20 risk control line was triggered. If you’re conservative, you may have already closed this trade to conserve capital.

While the bearish reaction to such a positive earnings story is disappointing, we still have plenty of time remaining in this trade.

I’m optimistic that WPX will return to higher prices soon!

Our profit targets remain at $16.00 and $18.00.

. . . . Exxon Mobil (XOM) March 20, 2015 $90 calls

Despite the huge call buying in this name last week, we’ve yet to see any bullish price action. In fact, XOM tested multi-month lows near $87 in today’s session.

But here’s the deal…

The $87 area is a big technical support zone. As a result, I’d be very surprised if we didn’t see bulls step into XOM very soon.

Keep holding your $90 calls for a big rebound!

Remember, our risk control line is at $85.90, while our profit targets are at $92 and $96.

. . . . EOG Resources (EOG) April 17, 2015 $95 calls

We’re off to a good start in EOG…

The shale driller is reacting positively to the technical support zone I pointed out in Monday’s trade alert. We’ve already seen our calls jump to a $1.70 bid in recent trading, which is a hefty 45% gain from our $1.17 entry price.

Be patient with this trade. Our profit targets are at $95 and $97 and our risk control line is at $86.


Category: Commodity Trading